Oil Price Hasn’t Hit Bottom as Surplus Expands, Greenspan Says
(Bloomberg) -- The price of crude oil hasn’t reached a bottom yet as production keeps increasing, former Federal Reserve Chairman Alan Greenspan said.
The slump in oil prices hasn’t curtailed output, and there is a huge amount bottled up in the U.S., Greenspan said in an interview with Bloomberg Television on Friday. Inventories at Cushing, Oklahoma, the delivery point for U.S. benchmark futures, will keep rising, he said.
“We are probably at the point now, where at the current rate of fill, we are going to run out of room in Cushing by next month,” he said. “Until we find a way to get out of this dilemma, prices will continue to ease because there’s no place for that oil to go except into the markets.”
West Texas Intermediate futures dropped 1.9 percent to $46.17 a barrel as of 9:31 a.m. Friday on the New York Mercantile Exchange. Prices are down almost 60 percent from their June peak.
U.S. crude stockpiles increased for nine weeks through March 6 to 448.9 million barrels, the highest in Energy Information Administration records dating back to August 1982. The nation pumped 9.37 million a day last week, the fastest pace in weekly estimates compiled by the Energy Department’s statistical arm since 1983.
Stockpiles at Cushing rose by 2.32 million barrels to 51.5 million last week, the highest level since January 2013. Cushing has a working capacity of 70.8 million barrels, according to the EIA.
The surplus may soon strain U.S. storage capacity, renewing a slump in prices and curbing its output, the International Energy Agency said in a monthly market report Friday. The IEA boosted estimates for U.S. oil production this year as cutbacks in drilling rigs have so far failed to slow output.
Drillers have idled 653 rigs since the start of December, data from Baker Hughes Inc. show. The number of active machines seeking oil was 922 as of March 6, the lowest since April 2011, the services company said. “The rigs that have been closing down have not been affecting the capacity to produce crude,” Greenspan said. “You are getting the inefficient rigs shutting down, but the capacity to basically build oil expansion remains there.”
It's Another Ugly Day for Oil
The price of oil is falling again.
The price of a barrel of West Texas Intermediate crude dropped around 2 percent on Friday morning. At just over $46, it's not that far away from its low for the year.
http://media.gotraffic.net/images/iYNZ4R0Um60U/v1/-1x-1.png
And here's a look at the long slide it's taken over the past 12 months.
http://media.gotraffic.net/images/iKwf6tPHpaA0/v1/-1x-1.png
Despite falling prices and declining rig count, oil production in the U.S. continues to rise, and storage facilities are getting filled to the brim, which has caused some to speculate that further weakness is ahead. On top of all that, on Friday morning, March 13, the International Energy Agency issued a report that it is raising estimates for U.S. oil production for this year, since the large reduction in drilling has failed to slow output.
IEA Sees China, India Filling Strategic Reserves With Cheap Oil
(Bloomberg) -- China and India are set to fill up their strategic petroleum reserves this year, taking advantage of lower oil prices, according to the International Energy Agency.
The two nations are building emergency stockpiles with millions of barrels of crude that mirror the reserves of oil and refined products that the U.S. and its western allies amassed after the first oil crisis of 1973 to 1974.
“Cheaper oil facilitates the building of strategic reserves,” the Paris-based IEA said on Friday in its monthly oil market report.
The purchases, if confirmed, will add to global oil consumption growth, the IEA said, offsetting “current weak fundamentals” of supply and demand and potentially boosting prices. Brent crude, a global oil benchmark, has fallen 47 percent over the past year to trade at $57.03 a barrel at 8:53 a.m. in London.
“Since oil prices began their rapid retreat last June, the import bills of oil-importing economies have declined,” the IEA said. “This has assisted governments in many of these countries in either adding to their strategic reserves or putting in place firm budgetary provisions to increase oil holdings.”
The energy watchdog said China was “expected to again stockpile crude in 2015” as it completes new tanking capacity. Beijing in November for the first time revealed details of its oil stockpiling program, saying it held about 91 million barrels in four different locations. The U.S. holds 696 millions barrels of oil in its emergency reserve, the largest in the world.
Indian Storage
India has yet to start storing crude oil, but the IEA said the government has approved a $338 million budget to cover the filling of its first emergency tanks this year. At current prices, that would amount to 6.5 million to 7 million barrels of crude. The Indian Strategic Petroleum Reserves Ltd., the company in charge of the stockpile, has already built a tank farm in eastern India capable of holding 10 million barrels of crude. Another two facilities in western India are expected to be completed by the end of the year, adding a combined 28 million barrels of capacity.
The IEA, adviser to 29 oil-consuming nations, said Vietnam has also used lower oil prices to boost its commercial stockpiles held at refineries.
China and India have said in the past they need to build strategic reserves to offset the risk of a disruption in supplies, mostly from the Middle East and North Africa. Western countries have used their strategic reserves only three times over the past 35 years, during the first Gulf War in Iraq in 1991, after hurricane Katrina in 2005 and in 2011, after the start of the war in Libya.
Record U.S. Oil Glut May Fill Storage, Cut Prices
Bloomberg) -- A record surplus in U.S. crude inventories may soon strain the nation’s storage capacity, renewing a slump in prices and curbing its output, according to the International Energy Agency.
The IEA boosted estimates for U.S. oil production this year as cutbacks in drilling rigs have so far failed slow its output. Crude inventories threaten to fill tanks, with the nation’s largest oil-storage hub in Cushing, Oklahoma 70 percent full, the agency said. The IEA raised its 2015 estimate of global oil demand by the most since it was introduced in July.
“Stocks may soon test storage capacity limits,” said the Paris-based adviser to 29 nations in its monthly market report. “That would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive.”
Oil has rallied about 20 percent in London over the past two months as U.S. drillers idled an unprecedented number of rigs in response to the biggest price collapse since 2008. Crude slumped 61 percent from June to January after OPEC signaled it would leave shale producers and other suppliers to deal with a global glut.
West Texas Intermediate crude, the U.S. benchmark, fell $1.69, or 3.6 percent, to $45.36 a barrel at 11:17 a.m. on the New York Mercantile Exchange. Brent, the international benchmark, dropped $1.02 to $56.06 a barrel. Both grades are heading for weekly declines.
Steep Revision
“The market moved lower on the back of the report,” Ole Hansen, an analyst at Saxo Bank A/S, said by e-mail from Copenhagen. “Continuing inventory builds are keeping the focus on whether storage may fill up. It’s becoming increasingly clear that, barring any major geopolitical event, the risks are pointing to lower oil prices.”
U.S. oil supply will expand this year by about 750,000 barrels a day to 12.56 million a day, up from a projection of 12.41 million in last month’s report. The agency boosted estimates for North American output in the fourth quarter of 2014 by a “steep” 300,000 barrels a day. The production forecasts include natural gas liquids and condensate, according to the IEA.
Abrupt Response
“While the U.S. supply response to lower prices might take longer to kick in than expected, it might also prove more abrupt,” the agency said.
The nation held 468 million barrels of oil in storage at the end of January, a record 72 million higher than the five-year average, the IEA said. The stockpile number includes U.S. territories such as Puerto Rico, Virgin Islands, and Guam, according to the IEA. Cushing stocks continued to increase steadily in February to 49.2 million barrels by the end of the month.
“What’s negative about the report is that supply is still growing at a solid pace,” Giovanni Staunovo, an analyst at UBS AG in Zurich, said by e-mail. “Demand was raised moderately.”
The agency increased forecasts for global oil consumption in 2015 by 130,000 barrels a day because of “modestly escalating global economic growth.” Demand will rise this year by 1 million barrels a day, or 1.1 percent, to an average of 93.5 million a day.
Much of the improvement in demand has been driven by refiner profits and purchases of crude to keep in storage, rather than an increase in fuel use by consumers, the agency said. China, the world’s second-biggest oil user, “remains in cooling mode.”
OPEC Production
The gain in global demand means that the level of crude needed from the Organization of Petroleum Exporting Countries will be 100,000 barrels a day higher than previously thought. That reduces the surplus caused by the group’s current over-production.
OPEC’s 12 members will need to provide an average of 29.5 million barrels a day in 2015, compared with the 30.22 million they pumped in February. Group production slipped by 90,000 barrels a day last month as losses deepened in Libya and Iraq. Saudi Arabia, OPEC’s biggest member, raised output to 9.74 million barrels a day from 9.69 million.
The average amount needed from OPEC in the second half of the year, at 30.3 million barrels a day, is both higher than current production and the organization’s official target of 30 million barrels.
“The global supply and demand balance definitely looks tighter in the second half,” Olivier Jakob, managing director at consultants Petromatrix GmbH, said by e-mail from Zug, Switzerland.
China Carbon Emissions Decline as 2014 Global CO2 Stays Flat
(Bloomberg) -- China’s emissions of carbon dioxide fell last year for the first time in more than a decade, helping stall global production of climate-warming gases. The finding, along with new data from the International Energy Agency, is a sign that efforts to control pollution are gaining traction.
Total carbon emissions in the world’s second-biggest economy dropped 2 percent in 2014 compared with the previous year, the first drop since 2001, according to a Bloomberg New Energy Finance estimate based on preliminary energy demand data from China’s National Bureau of Statistics.
Global carbon emissions from the energy sector were unchanged last year, the first time in 40 years that a halt or dip wasn’t associated with an economic downturn, the IEA said Friday in a statement. China and developed nations have encouraged investment in renewable energy and efficiency measures, decoupling economic growth from emissions, the IEA said.
“Coal demand is slowing” in China while all other fuels, including oil, gas and renewables, are being consumed more, said Sophie Lu, a Beijing-based analyst at BNEF.
The IEA has identified shifting energy consumption in China, the most populous nation with 1.4 billion people, as among the reasons global carbon dioxide emissions was flat last year.
Fatih Birol, the IEA’s chief economist who was named in February as the agency’s next executive director, said the results are an encouraging sign.
“This gives me even more hope that humankind will be able to work together to combat climate change, the most important threat facing us today,” Birol said in the IEA statement.
Renewables Investments
The China results show that the country’s battle to rein in pollution is having a tangible effect. The world’s biggest carbon emitter, has poured money into clean energy sources such as solar, wind and hydro developments, while cutting its dependence on coal.
China led in renewables last year with investments of $89.5 billion, accounting for almost one out of every three dollars spent on clean energy in the world, according to BNEF figures released in January.
Domestic coal production is falling along with consumption.
China’s coal consumption fell 2.9 percent in 2014 from the previous year, the first drop in at least a decade, said Tian Miao, a Beijing-based analyst at North Square Blue Oak Ltd., a research company in London with a focus on China.
China’s energy consumption growth weakened to 3.8 percent in 2014, the lowest since 1998, as the economy expanded at its slowest pace since 1990.
The world’s biggest energy consumer got 11 percent of its primary energy from non-fossil fuels including renewables and nuclear in 2014, up from 9.8 percent a year earlier, the National Energy Administration said on Dec. 31. China is targeting 15 percent of its energy from such fuels by 2020.
Pollution Mitigation
The proportion of coal fell to 64.2 percent last year from 66 percent in 2013, according to the NEA.
Hebei, China’s most polluted province, cut coal consumption by 15 million tons, closed 141 mines and stopped work to improve 478 mines last year, Chen Guoying, head of the provincial environmental protection department, said this week.
China plans to cap carbon emissions by 2030 under an agreement reached between U.S. President Barack Obama and Chinese President Xi Jinping in November.
A wider climate change accord may be finalized in Paris climate talks in December after negotiations in Lima last year ended with a plan for nations to commit to cut emissions.
Emissions Stall Amid Growth for First Time in 40 Years
(Bloomberg) -- Global emissions were unchanged last year, the first time that’s happened amid economic growth in four decades, according to the International Energy Agency.
Carbon-dioxide emissions, which scientists say are responsible for climate change, were stable at 32.3 billion metric tons, even as the global economy advanced 3 percent, the Paris-based agency said today in a statement on its website, citing preliminary estimates. China, the world’s biggest emitter, generated more of its electricity from renewable sources including hydropower, solar and wind and less from coal, the dirtiest fossil fuel, it said.
The preliminary data suggests efforts to slow climate change may be more effective than expected, the IEA said. United Nations envoys are holding a series of meetings through the end of this year to try to seal a global deal limiting greenhouse gases in the period after 2020 in a bid to prevent emissions from rising to a level scientists say will lead to irreversible climate change.
Last year’s stagnation “provides much-needed momentum to negotiators preparing to forge a global climate deal in Paris in December: for the first time, greenhouse gas emissions are decoupling from economic growth,” Fatih Birol, who takes over next year as executive director of the IEA, said in the statement.
The news is a surprise after coal prices fell last year, Bernadett Papp, an analyst at Vertis Environmental Finance Ltd. in Budapest, said today in an e-mailed response to questions. Front-year European coal dropped for a fourth year in 2014, dipping 20 percent in the fastest annual rate since 2008, according to broker data. The commodity has since declined a further 11 percent.Chinese Emissions
High oil and natural gas prices at the beginning of last year would have hurt demand for those fossil fuels, Karsten Neuhoff, head of the climate-policy department at DIW Berlin, an economics research institute, said Friday by telephone.
“The promising part is there wasn’t much of a switch back to coal,” he said.
China’s emissions last year fell 2 percent, the first drop since 2001, according to a Bloomberg New Energy Finance estimate based on preliminary energy demand data from China’s National Bureau of Statistics. The world’s second-biggest economy plans to cap carbon emissions by 2030 under an agreement between President Xi Jinping and U.S. President Barack Obama in November.
Less Coal
The Asian country seeks to get 15 percent of its energy from renewable sources and nuclear by 2020, with the share of such fuels rising to 11 percent last year after investment of $89.5 billion, from 9.8 percent in 2013. The nation’s coal use dropped 2.9 percent last year, with the fuel’s share of total energy declining to 64.2 percent from 66 percent.
In the past 40 years, there have only been three times when emissions stood still or fell compared with the previous year, and all were associated with global economic weakness, the agency said. They were in the early 1980s, 1992 and 2009. The IEA has been tracking emissions data for four decades.
Eni Becomes First Oil Major to Cut Dividend After Price Drop
(Bloomberg) -- Eni SpA became the first major oil company to announce a dividend cut as the Italian group prepares for a period of lower oil prices.
The Milan-based company said it was targeting a dividend of 0.8 euro per share, down from 1.12 euros in 2014 and the first cut in investors’ payout since 2009. The stock fell 4.6 percent today in Milan trading.
“We are building a much more robust Eni capable of facing a period of lower oil prices,” Chief Executive Officer Claudio Descalzi said in a presentation in London.
Eni also said it was suspending the 6 billion euros ($6.7 billion) buy-back plan it announced last year. “Its reintroduction will be evaluated when strategic progress and market scenario allow it,” the company said.
In his first strategic update since becoming CEO last May, Descalzi announced sales of assets worth 8 billion euros in 2015-2018, including shares in subsidiaries Galp Energia SGPS and Snam SpA. In addition, he proposed a 17 percent cut in investment over the same four years compared to previous plans to adjust to lower prices.
Eni is the last of the big European oil companies to announce lower spending for next year after crude prices slumped to about $50 a barrel from more than $100 a year ago. Royal Dutch Shell Plc, BP Plc, Total SA and Repsol SA have all said they will reduce spending in 2015. But until now, all its rivals have vowed to sustain their dividend.
Production Growth
In spite of the lower spending forecast, Eni said that its oil and natural gas production will grow 3.5 percent per year in the four years to 2018. That’s on the back of several projects started in 2014 in Angola, Congo, the U.K., the U.S. and Norway.
In addition, Eni said it would start pumping from another 14 projects from 2015-2018, bringing 650,000 barrels a day of oil equivalent. Eni pumped 1.6 million barrels of oil last year, up 0.6 percent from 2013.
Descalzi said that Eni would be able to pay its dividend and its investment program from its cash flow if oil prices recover to $63 a barrel.
“At around $60 we’ll be strong,” he said. “We are creating a company that is not using its reserves to pay the dividend but its cash flow.”
Reduce Debt
Descalzi took over as CEO from Paolo Scaroni with a mandate to turn around the non-oil business, including the gas and power, and chemicals divisions, and reduce debt. The task was particularly urgent as the loss of oil output in Libya, where before the war in that country Eni was the largest foreign producer, has compounded the impact of lower oil prices.
Aneek Haq, an oil analyst at Exane BNP Paribas in London, said in a report ahead of the strategic update that Eni’s businesses outside oil exploration and production “have been a drag on earnings since 2012” despite recent improvement.
Eni reported adjusted net income of $3.7 billion last year, down 16.3 percent from the $4.4 billion of 2013.
Descalzi said that Eni was already in talks with potential buyers for some assets, including gas fields in Mozambique, and added that the company will try to sell mature fields in the North Sea.
Eni plans to reduce its refinery capacity by 20 percent in the next four years, on top of the 30 percent cut it has already achieved. The reduction will allow the company’s refinery business to break-even by the end of 2015, Eni said.
The Italian government which owns about 30 percent of Eni through both direct and indirect stakes stands to lose about 352 million euros from the dividend cut. With the Italian economy still struggling to rebound from its longest recession on record the loss may push the government to resuscitate a plan to sell a part of its Eni stake to bring in extra cash.
U.S. Drilling Retreat Deepens as Oil Rigs Fall Below 900
(Bloomberg) -- U.S. oil explorers idled oil rigs for the 14th straight week, prolonging the biggest retrenchment in drilling on record.
Rigs targeting oil in the U.S. fell by 56 to 866, Baker Hughes Inc. said on its website Friday, the lowest level since March 25, 2011. The Permian Basin of Texas and New Mexico, the nation’s biggest oil field and one of its oldest, lost the most, dropping 23 rigs to 305. The U.S. rig total slid to the lowest since November 2009.
The country has sidelined 709 oil rigs in 14 weeks as a price collapse has prompted the nation’s energy producers to cut billions in spending and eliminate thousands of jobs. The retrenchment threatens to slow the shale boom that turned the U.S. into the world’s largest fuel exporter. Oil analysts, traders and investors have been monitoring rig counts to determine when output will retreat enough to balance the market.
“At the rate we’re going, where we’re dropping more than 200 rigs a month, we could get to 700 by the end of April before we bottom out,” Eric Mintz, who co-manages more than $10 billion in assets at Eagle Asset Management Inc. and has focused on energy investments for over a decade, said by phone. “We’ve seen a demand response here in North America, and I do think we could snap back by the end of the second quarter.”
The U.S. benchmark West Texas Intermediate oil for April delivery fell $2.21 to settle at $44.84 a barrel on the New York Mercantile Exchange, down 58 percent from the 52-week high of $107.73 reached June 20.
Drilling Cutbacks
Drilling cutbacks have yet to make a dent in U.S. oil production, which has continued to top records because of bigger and higher-yielding shale wells. Output rose 42,000 barrels a day in the seven days ended March 6 to 9.37 million, the highest rate in weekly Energy Information Administration data going back to 1983. It’s forecast by the EIA to average 9.35 million this year, the highest since 1972.
Goldman Sachs Group Inc. said in a March 8 research note that the U.S. was still running enough rigs to boost U.S. oil production 290,000 barrels a day by the fourth quarter compared with a year earlier.
Crude stockpiles swelled 4.51 million barrels to a weekly record 448.9 million as of March 6, taking up 62 percent of the country’s storage capacity, EIA data show.
Adding to the glut is rising output from the Organization of Petroleum Exporting Countries, which accounts for about 40 percent of the world’s oil. OPEC members including Saudi Arabia, its biggest supplier, boosted output in February.
OPEC Production
The group will maintain its policy at its next meeting unless other producers cut first, Abdullah bin Hamad al-Attiyah, who was Qatar’s energy minister from 1992 to 2011, said at the Doha Energy Forum March 10.
Jozef Lieskovsky, a senior analyst at EIA in Washington, said on March 10 that U.S. oil production was already reaching an “inflection point” at which, barring a sudden rebound in drilling, output from shale regions will begin to decline.
Onshore drilling permits issued in the U.S. slid to 3,456 in February, down 41 percent from a year earlier, according to Evercore ISI. U.S. oil production may fall by the end of the year, Evercore ISI analysts including James West said in a March 10 report.
The rigs left drilling in Texas’s Eagle Ford formation and the Williston Basin, home to North Dakota’s Bakken shale, aren’t enough to sustain current production, and output may drop next month, James Williams, president of energy consulting company WTRG Economics, said by phone on Friday from London, Arkansas.
500 More
If the U.S. drilling downturn in 2008 and 2009 is any indication, energy producers still have 500 more rigs to lay down, Allen Brooks, managing director at the Houston-based energy investment bank PPHB Securities LP, said in a report on March 10. That would probably take seven to eight weeks, he said.
“The good news from this analysis is that we may be nearing a bottom in the rig decline,” Brooks said. “The bad news is we don’t know when or how fast the rig count might rebound.”
U.S. Seeks More Crude for Strategic Reserve After 2014 Sale
(Bloomberg) -- The U.S. government wants to buy up to 5 million barrels of crude to store in its strategic reserve on the Gulf Coast.
The Energy Department wants the crude delivered to its Bryan Mound storage cavern near Freeport, Texas, in June or July, according to a pre-solicitation notice posted on federal websites today. The purchase follows a 5 million-barrel test sale last spring, when oil prices were nearly double what they are now.
The Strategic Petroleum Reserve purchase comes as booming shale oil production has pushed private oil inventories in the U.S. to 449 million barrels, the most in records dating back to 1982. The reserve has 691 million barrels and 36 million barrels of empty space.
“Commercial storage is filling up,” said David Hackett, president of Stillwater Associates, an energy consulting firm in Irvine, California. “If they buy domestic oil and put it in the SPR, that creates 5 million more barrels of space in commercial storage.”
The law requires the Energy Department to use the funds from last year’s test sale to purchase replacement crude, Robert Dillon, spokesman for Senate Energy and Natural Resources Committee Chairman Lisa Murkowski, R-Alaska, said in an e-mail.
The government plans to officially post its tender offer on its websites about March 23, according to the notice.
Peak Inventory
The purchase will be the first for the reserve since it reached its peak inventory level of about 727 million barrels in December 2009. It released 31 million barrels in 2011 to help offset supply disruptions caused by upheaval in the Middle East and North Africa, and exchanged 1 million with Marathon Petroleum Corp. after Hurricane Isaac blocked tankers from delivering crude to the company’s Garyville refinery in Louisiana.
The SPR, which was created in the 1970s in response to the Arab oil embargo, has four underground storage caverns in Texas and Louisiana. The Bryan Mound site has 241 million barrels in storage now.
When the reserve finished filling in 2009, it held the equivalent of 80 days worth of crude imports to the U.S. Booming domestic oil production from shale wells has cut inbound shipments since then, and the reserve now holds 94 days of imports based on 2014 data.
“This is all happening at the same time that a debate is going on about whether we really need 700 million barrels in the SPR given the increase in production in the U.S., so it is surprising,” said Andy Lipow, president of Lipow Oil Associates LLC in Houston.
Oil-Sands Rules Get Tougher as Alberta Seeks Less Damage
(Bloomberg) -- Oil-sands producers will be forced to reduce waste water and to clean up and restore mined land within a decade as Alberta seeks to reduce environmental damage.
Regulation announced by Alberta Environment Minister Kyle Fawcett in Edmonton on Friday, include limits on water withdrawals from the Athabasca River in the Canadian province’s north. Companies will also be required to slow the growth of tailings ponds, which hold waste water from bitumen mining, and restore land that existing ones are on after 10 years of the end of the mine’s life, the minister said.
Oil-sands operators have come under attack for environmental impact including emissions of greenhouse gas and fresh-water use, helping to stall pipeline construction such as TransCanada Corp.’s Keystone XL. Production of bitumen, forecast to more than double by 2030, is Canada’s fastest-growing source of carbon emissions.
The new rules are a more “realistic” policy framework than the existing regulations known as Directive 74, Fawcett said.
“This framework will commit that we are minimizing tailings at the end of a mine’s life,” and there will be penalties for companies failing to meet the targets, he said. “This will be a better story to market our products.”
Last year oil-sands producers pledged to lower by half the amount of fresh water used in bitumen processing as the industry counters criticism that it pollutes too much.
Members of Canada’s Oil Sands Innovation Alliance, or COSIA, including Suncor Energy Inc. and Royal Dutch Shell Plc, aim to lower the amount of fresh water used to process bitumen to 0.2 barrels per barrel of bitumen by 2022 from 0.4 now, the group said on Nov. 25.
IEA sees renewed pressure on oil prices as U.S. glut worsens
LONDON — Reuters
Oil prices might have stabilized only temporarily because the global oil glut is worsening and U.S. production shows no sign of slowing, the International Energy Agency said on Friday.
The West’s energy watchdog said the United States may soon run out of spare capacity to store crude, which would put additional downward pressure on prices.
The threaded end of one of hundreds of drill pipes is shown in front of the Baytex Energy Ltd.'s Pembina oil rig near Pigeon Lake, Alta., in 2012.
Employment in Alberta fell by 14,000 in February, pushing the unemployment rate in the province up 0.8 percentage points to 5.3 percent, the highest since September 2011. Overall, Canada shed 1,000 jobs versus an estimated 5,000 loss in February.
That process would last at least until the second half of 2015, when growth in U.S. oil production is expected to start abating.
Combined with an increase in global demand, the expected U.S. production slowdown would give some support to oil prices and respite to oil producers’ group OPEC, the IEA said.
“On the face of it, the oil price appears to be stabilising. What a precarious balance it is, however,” the Paris-based IEA said in its monthly report.
“Behind the façade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”
The IEA said steep drops in the U.S. rig count have been a key driver of the recent price rebound, which saw Brent crude rising to $60 per barrel after falling as low as $46 in January from last year’s peaks of $115.
“Yet U.S. supply so far shows precious little sign of slowing down. Quite to the contrary, it continues to defy expectations,” the IEA said.
In February, non-OPEC production is estimated to have risen by about 270,000 barrels per day (bpd) on a month-on-month basis to 57.3 million bpd, led by higher output in North America.
Global supply rose by 1.3 million bpd year-on-year to an estimated 94 million bpd in February, led by a 1.4-million-bpd gain for non-OPEC producers.
U.S. crude inventories soared due to output growth and plunging crude refinery throughput, with seasonal and unplanned refinery outages, weak margins and high gasoline stock builds.
At last count, U.S. crude stocks stood at a record 468 million barrels, the IEA said.
“U.S. stocks may soon test storage capacity limits. That would inevitably lead to renewed price weakness, which in turn could trigger the supply cuts that have so far remained elusive,” the IEA said.
“While the U.S. supply response to lower prices might take longer to kick in than expected, it might also prove more abrupt,” it said, adding that growth would abate in the second half of 2015.
The IEA’s conclusions will disappoint OPEC, which kept its output steady at the group’s last meeting in November to protect market share and stifle U.S. oil output growth.
In the second quarter of 2015, when demand is at its weakest due to global refinery maintenance, the need for OPEC crude will be 28.5 million bpd, the IEA said – compared to the group’s current output of 30.22 million bpd in February.
The IEA raised its demand forecast for the second half of 2015, which in turn led to a higher call on OPEC crude of 30.3 million bpd in the same period – closer to the group’s real production levels and the official target of 30 million bpd.
Having bottomed in the second quarter of 2014, global oil demand growth has since steadily risen, with year-on-year gains estimated at 1.0 million bpd for the first quarter of 2015, the IEA said.
The forecast of demand growth for 2015 as a whole has been raised by 75,000 bpd to 1.0 million bpd versus the last report and versus the 680,000 bpd growth seen in 2014, bringing global demand this year to an average of 93.5 million bpd.
“Tentative signs of a demand recovery have emerged with the turn of the year, with a heavy emphasis reserved for the word ‘tentative’,” the IEA said.
In other bullish factors – beyond political instability in certain producing countries such as Iraq and Libya – refined product markets have proved unexpectedly strong, the IEA said.
“Not only have product prices lagged those of crude during the selloff – as is common in a downturn – but they have raced ahead of them in the rebound, keeping refining margins remarkably firm, and supporting unexpectedly strong throughputs in once-depressed refining centres such as Europe and OECD Asia,” the IEA said.
“Product demand has shown signs of life, with even European demand emerging from a secular decline to show strong growth of 3.2 per cent in December and 0.9 per cent in January”.
One of the big unknowns is how oil demand will respond to low prices. Lower prices should push up consumption, but how quickly and how fervently consumers respond will go a long way to determining when the glut will subside. Overall demand is also largely determined by broader economic growth. With so much unknown about the rate of economic expansion around the world, demand projections are understandably all over the place.
The IEA, OPEC, and EIA -- the three most-watched energy prognosticators -- have tinkered with their oil demand scenarios, but they haven't yet seen enough evidence to forecast a surge in demand.
Finally, clouding the entire picture are fluctuations in currency markets. Fluctuations in currencies influence -- and are also influenced by -- fluctuations in oil prices. Most important is the U.S. dollar because oil prices are priced in dollars.
Just to take a recent example, the U.S. posted very positive employment numbers on March 6. While that should theoretically put upward pressure on oil prices because a stronger economy should lead to more oil consumption, oil prices actually fell. Why? A stronger economic outlook also raised speculation that the Federal Reserve may increase interest rates, which would strengthen the dollar. Since oil is priced in dollars, a stronger dollar tends to push down oil prices.
U.S. Energy Department plans to buy up
By MyraP. Saefong
SAN FRANCISCO (MarketWatch) — The U.S. Energy Department plans to buy up to five million barrels of crude oil for the Strategic Petroleum Reserve, a government spokeswoman confirmed to MarketWatch on Friday.
The news couldn’t have come at a better time. With crude prices down roughly 15% year to date, the government would be scooping up oil on the cheap — and it would take millions of barrels of crude oil away from a market that has been drowning in record supplies.
April crude oil CLJ5, -1.52% settled at $44.84 a barrel on Nymex Friday, down 9.6% for the week. In electronic trading following news of the DOE plans, prices were trading above $45.
Bloomberg News
A technician at the Strategic Petroleum Reserve inspects a crude oil transfer pipe.
“The DOE is trying to take advantage of what is a low price for oil,” offered Phil Flynn, senior market analyst at Price Futures Group. “There was talk that this could happen. The DOE has been pretty good at adding to the reserve when prices are low and they can help out struggling U.S. producers to boot,” he said.
A spokeswoman for the Energy Department confirmed the oil-purchase plans, which were initially reported by Reuters and CNBC.
The government agency said it is required to buy back petroleum products within one year, using the proceeds from a test sale, which it conducted 12 months ago. Last year, the Energy Department used some of the funds from the sale to establish the first-ever U.S. gasoline reserve in the Northeast.
So, with the remaining funds left in the account, the government is initiating a buyback process to purchase additional crude oil for its reserve sites along the Gulf Coast, the Energy Department said.
Crude oil seen dropping to $40 or even $20 a barrel this year
ROCHAN-M
Crude Oil Prices OutlookA sculpture made of oil barrels is seen at the Mexican Institute of Petroleum metro station in Mexico City in February.Reuters
Traders and investors expecting the oil rout to give way to a V-shaped recovery could be painfully disappointed, according to a hedge fund manager who profited from falling oil prices in 2014.
The global crude oil supply glut and a dearth of storage capacity in the US, where crude inventories are at their highest level in over 80 years, could result in oil flooding the physical markets, hitting prices eventually, Doug King, the London-based CIO of the Merchant Commodity Fund, told MarketWatch.
King, who forecast in January that oil could test the $30 to $35 a barrel level, said he was confident of prospects for another push lower, to below $40.
The second quarter, he noted, is usually the weakest for demand.
King estimated that despite falling drilling activity in the US, oil production was around 1.2 million to 1.3 million barrels a day more than it was a year ago.
And on the demand side, King noted that China's economy, the world's second largest, appeared to be struggling, while a rising US dollar, a "headwind" for the US economy, had put pressure on emerging-market currencies.
Stubborn oil bulls
King also pointed to the stubborn oil bulls, the big speculators maintaining significant net long positions, or bets that crude prices will go up. Their bets have left the market more vulnerable to another downswing if and when they exit the marketplace.
King told the website: "I still believe we're going to go below $40 and you're going to have a look at the lows. I think it's going to happen faster now than people think.
"I look for facts. I look for the reality of production decline, and, today, we're not seeing it.
"I look at other commodity markets: the speculator is short Arabica [coffee], the speculator is short natgas futures. And in crude oil, he's [net long] long 300,000 barrels of WTI alone, and I think, God, just imagine if he went even. It would be a bloodbath.
"People who think this will be a V-shape [rebound] and off we go again will be mistaken."
The US April crude contract settled at $44.84 a barrel on 13 March while the Brent April contract finished at $54.67 a barrel.
Oil at $20?
King's comments follow warnings by analysts this month that crude oil could drop to $40 a barrel and, probably, to $20.
The strengthening greenback and economic weakness in Europe and China could drive crude prices as low as $20 per barrel, said Raoul Pal of The Global Macro Investor newsletter.
The dollar has been climbing against the euro and the yen. Pal, speaking to CNBC, said crude could still fall another 60% before the downturn is done.
Pal also said that falling prices could potentially push the US into a recession by the end of 2015.
Earlier, analysts at Goldman Sachs warned that oil prices will reverse their recent gains as global inventories begin to rise, with US crude likely to drop to $40 a barrel in the near-term.
Goldman added that Brent prices will also come under renewed pressure.
The Merchant Commodity Fund logged a 59.3% return in 2014, driven largely by bets that oil prices will fall.
Have Oil Prices Hit Their Floor?
New market equilibrium could come from U.S. shale drilling
By Georgi Kantchev And Bill Spindle
After their sharp drop late last year, oil prices have been trading in a relatively steady band for more than a month, raising an obvious question: Has the market hit a bottom?
A number of fundamentals suggest not yet: Global storage levels are brimming. Economies in the U.S., Europe and Asia are all mixed, clouding demand forecasts. And some of the world’s biggest producers—including Saudi Arabia, its fellow OPEC members and Russia—are still pumping at full speed. All of that means the global glut of oil that caused the big price drop in the first place isn’t likely to ease soon.
Still, some investors and analysts expect a new market equilibrium to eventually take hold, one based on the assumption that U.S. shale producers can react to prices much faster than conventional drillers. Some say it may already be happening.
“We think (shale production) is a lot more responsive to price changes,” said Antoine Halff, head of oil and markets at the International Energy Agency, the global watchdog for consuming countries, in a recent speech. “This will make this recovery much different than previous ones…we see the market to be a little more smooth and balanced than in previous price swings.”
U.S. shale production is now a key component of global supply—growing from almost nothing to 3.6 million barrels a day last year, according to the IEA. That is still a fraction of the approximately 30 million barrels of crude that members of the Organization of the Petroleum Exporting Countries pump each day. But shale capacity can be switched on and off much more quickly than conventional wells, providing a more-immediate supply response to price moves, analysts say.
Shale producers drill more wells than conventional producers. Those wells can vary widely in costs, but to curb output, producers can simply slow down the drilling and completion work of some of these wells. That is a lot easier than “shutting in” production—or turning wells off—which can be costly and take months or even years to reverse.
Oil lost more than half its value in the last six months of last year and into the first weeks of 2015, the type of huge swing that has happened only once a decade or so over the past half century. Prices recouped some of their losses in early February and have since stabilized.
U.S. crude has been trading between about $47 per barrel to $53 per barrel. Still, that is well below the $107 a barrel it fetched in June of last year. Brent, the international benchmark, has been stuck in a recent range of around $56-$62 per barrel. Late Thursday in New York, U.S. crude was down nearly 2.3% on the day, trading around $47.
Last week, money managers increased their bullish bets on the direction of Brent, boosting long positions by about 5%, according to data provided by Intercontinental Exchange Inc. At the same time, though, traders pared back long positions on U.S. crude, according to U.S. Commodity Futures Trading Commission data.
Georgi S. Slavov, head of research at London-based commodities brokerage Marex Spectron, said crude hit its floor, at least for now, as Brent approached $40 a barrel in January. At that level, about half of the world’s output wasn’t profitable, he figures, suggesting producers would have to pull back.
“When oil came close to $40 in January, production capacity was quickly withdrawn, which caused the rebound,” he said. “This forms the floor.”
Indeed, the number of U.S. oil drilling rigs—a proxy for activity in the oil industry—has fallen sharply since prices headed south last year. There are now about 40% fewer rigs working since a peak in October.
That hasn’t yet translated into a drop in actual output, even though it has squelched production capacity. The U.S. Energy Information Administration earlier this week forecast that output in four of the five biggest shale production areas in the U.S. will fall next month, though overall production is still expected to rise by about 1,000 barrels a day.
Still, the magnitude of the U.S. drilling pullback is enough to support prices, Mr. Slavov said. At the same time, at $60 a barrel, “this spare capacity is brought back,” making that level an approximate “ceiling,” he said.
Write to Georgi Kantchev at georgi.kantchev@wsj.com and Bill Spindle at bill.spindle@wsj.com
IEA: Strong U.S. Production Could Set Stage for Oil Price Fall
Fresh plunge in oil prices could usher in supply cuts that have ‘remained elusive,’ says watchdog
ByBenoît Faucon
The oil market’s recent rebound may not last, an influential energy watchdog warned on Friday, as the U.S.’s ability to keep pumping more crude has defied expectations and could set the stage for prices to fall again.
In its closely watched monthly report, the International Energy Agency said U.S. oil production was up 115,000 barrels a day in February, some of it going into bulging storage inventories whose capacity may soon be tested. “That would inevitably lead to renewed price weakness,” the report said.
Financial markets have been closely watching oil prices, which had recovered to more than $60 a barrel for Brent crude, the global benchmark, after plunging by 60% over seven months to less than $47 in January. Oil prices had traded in a fairly narrow range for about a month, raising the question of whether the market had stabilized after a historic collapse.
The IEA called the appearance of stability a “facade.”
“On the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however,” the report said. “Behind the facade of stability, the rebalancing triggered by the price collapse has yet to run its course, and it might be overly optimistic to expect it to proceed smoothly.”
Oil prices were down on Friday in London, with Brent crude, the global benchmark, trading at $56.55 a barrel, down more than 1%, while Nymex crude contracts were down more than 2% at $46.11. Five days ago, Brent was at about $60 and Nymex at $50.
‘On the face of it, the oil price appears to be stabilizing. What a precarious balance it is, however.’ —International Energy Agency report
Another decline in crude oil prices could spell good news for motorists, who had begun to feel the pinch of higher costs at the pump in the past two months. The average cost of a gallon of gasoline in the U.S. was $2.49 this week, compared with $2.04 cents on Jan. 26, according to the U.S. Energy Information Administration.
The force behind any price fall would be stubborn flows of American oil, much of it produced by hydraulic fracturing of underground shale formations. Shale oil has contributed to a global oversupply of oil, and the IEA raised its predictions of American production for the first quarter of 2015. U.S. crude stocks stood at an all-time record, the IEA said, with American producers not pulling back as quickly as some thought they would when prices fell.
The IEA suggested that it might take another round of falling prices to usher in the kind of supply cuts that “so far remained elusive,” predicting that U.S. production growth would abate in the second half of this year. That has given hope to some analysts who foresee higher prices later in the year.
“We still see fundamental support for higher prices,” Oswald Clint of Sanford C. Bernstein Research said Friday, in response to the IEA report.
The Paris-based IEA’s track record on calling future global supply and demand, and prices, hasn’t been significantly better than other oil-market forecasters. But as the de facto watchdog for the world’s industrialized oil consuming countries, its assessment of markets is closely followed.
Last month, the IEA said that an oil-price recovery seemed “inevitable” in the second half, as the U.S. oil boom was expected to pause. Observers have been waiting for U.S. shale production to ease since November, when OPECdecided against making its own cuts in output and decided to keep pumping to maintain and increase its market share.
That decision had been interpreted as a declaration of war against U.S. shale, which is more expensive to produce than the conventional crude found in OPEC states like Saudi Arabia. Earlier this week, Abdalla Salem el-Badri, the secretary-general of the Organization of the Petroleum Exporting Countries, said the price slump was hurting the shale-oil industry in North America.
In “driving the oil price down, the future of tight oil in North America is now in question, due to the high cost of its extraction compared with the exploitation of OPEC’s conventional crude reserves,” OPEC said in its monthly bulletin on Friday, using a term that includes unconventional crudes such as those taken from American shale.
But others on Friday echoed the IEA’s view, saying that, in the short term, the oil market is fundamentally weak. “U.S. production growth hasn't yet slowed enough to balance the oil market,” Goldman Sachs said in a note to investors.
Higher oil demand had also been pushing oil prices upward recently, but the IEA said some demand was fueled “opportunistic buying” and growing interest in purchasing low-cost oil now, to be sold later at a profit when prices rise.
“While that would have helped tighten product markets, such demand is less sustainable than that driven by underlying economic growth, and there are still few firm signs at this stage that lower prices are giving the economy a real boost,” the IEA said.
Among those hoarding oil for storage are China and India, which have been filling up their strategic petroleum reserves, the IEA said. In the U.S. crude-oil supplies are equal to nearly 70% of the nation’s storage capacity, and a key storage hub in Cushing, Okla., is expected to hit maximum capacity this spring. Crude storage in Europe, South Africa, Japan and South Korea could be at more than 80% of capacity.
Demand—often difficult to gauge—was positive in Europe and the U.S., which saw two consecutive months of year-over-year increases. But in China, the world’s second-biggest consumer of oil behind the U.S., demand appeared “subdued,” the IEA said. Overall, the IEA raised its forecast of demand growth for this year by 75,000 barrels a day to 1 million barrels a day, bringing global demand to an average of 93.5 million barrels a day.
The agency said the higher oil demand forecast would boost consumption of OPEC crude, which it upgraded by 100,000 barrels a day for this year to 29.5 million barrels a day in 2015. It said, however, that production was down by 90,000 barrels a day last month as high Persian Gulf output was offset by Libyan disruptions.
Write to Benoît Faucon at benoit.faucon@wsj.com
Tomorrow's oil price? Guesses range from $20 to $200
Predicting and diagnosing the trajectory of oil prices has become something of a cottage industry in the past year.
Along with all of the excess crude flowing from the oil patch, there is also an abundance of market indicators that, while important, tend to produce a lot of noise that makes any accurate estimate nearly impossible.
First there is the oil price itself. The crash began last summer, and accelerated in November. Since then, predictions for oil prices for 2015 have been all over the map -- from Citigroup's $20 per barrel, to T. Boone Pickens' prediction of a return to $100 per barrel. OPEC's Secretary-General even said prices could shoot up to $200 in the coming years as a result of overly drastic cutbacks and a failure to invest in new production.
With those estimates at the extremes, most analysts think prices will continue to seesaw within a rough band of $40 to $70 for the rest of the year. Still that is quite a large range, highlighting the fact that everyone is merely guessing.
Aside from oil prices, the weekly measurement of the number of rigs still in operation has become one of the most watched indicators out there. Weekly rig counts from Baker Hughes have sparked the Twitter hashtag #Rigcountguesses, to which energy analysts post their predictions.
For the week ending March 6, another 75 oil and gas rigs were pulled from operation, taking the total down to 1,192. That is the lowest level in years, and 43% lower than its 2014 peak.
While the rig count metric has garnered a lot of attention as a leading indicator of a potential cut back in oil production, it has also been criticized for not being an entirely accurate portrayal of output. Drillers have become more efficient, able to use fewer rigs for the same amount of production. So the notion that a falling rig count will necessarily lead to a fall in production may be a bit more complicated than it seems.
http://i2.cdn.turner.com/money/dam/assets/150312135054-oil-price-since-july-780x439.png
Too much oil supply: A new metric that has popped up in recent weeks is the level of available storage. Excess oil has been stashed in storage tanks around the world, but government data suggests that storage space is starting to run low. The EIA says that about 60% of total U.S. storage is filled, a jump from 48% a year ago.
Regional figures are higher, for say, the East Coast (85%). Oil storage is at its highest level in 80 years, and storage at the all-important hub in Cushing, Oklahoma could begin to run out of space this spring.
Globally, the picture isn't any better -- Citigroup says Europe is at 90%, while South Korea, South Africa, and Japan may all be nearing 80%. The growing shortage of places to put oil has led to the creation of an oil-storage futures contract by CME Group. As storage begins to run out, the glut could worsen, sending prices way down.
Another key number to keep in mind is the number of drilled but uncompleted wells out there. There are an estimated 3,000 wells that have not been completed as producers wait for prices to rebound. Instead of storing oil in tanks, simply holding off on finishing a well can allow drillers to "store" oil in the ground. Once completed, however, the backlog of wells will push down prices.
The key factor: The most important indicator for trying to figure out where prices are going is actual levels of oil production. In the face of spending cut backs, drops in rig counts, and ongoing price pressure, oil production continues to defy gravity. Output continues to climb.
At the end of February, the U.S. was producing 9.3 million barrels per day, up 10% since prices began crashing in June 2014, and even up 2 percent since the beginning of 2015. Low prices have yet to cut into the trend line, but will have to at some point soon.
The set of indicators above is just a small selection of what energy prognosticators have to take into account when trying to predict oil prices. When you throw in geopolitics, technological advances, and changes in tax policy, for example, one quickly realizes that nobody knows which way oil prices are heading.
What if Oil Runs Back to $80 this Year?
by Joshua M Brown
An interesting speculation on the part of UBS’s economists about oil this morning. The firm asks which areas of investment will be winners and losers should the price of oil rebound to $80 by the end of this year. They guess that there’s a 25% chance of this occurring based on past price swings…
The chart below reinforces that message showing 12-month percentage point changes in oil prices. If oil prices were to remain close to current levels over the remainder of 2015, it would be unusual. There have only been 8 occasions in the last 150 years, for example, when the cumulative 2-year change in oil prices has been more than 50%, which is what it would be if oil prices remained close to $60/bbl from here. Putting that another way, there is at present a 25% chance that oil prices climb to $80 or higher by the end of 2015 based on the pure statistical properties of oil price swings in the past as well as relative to what is discounted in the forward curve.
http://thereformedbroker.com/wp-content/uploads/2015/03/Screen-Shot-2015-03-12-at-10.43.50-AM-1024x366.png
The firm posits that should this kind of mean reversion occur for oil prices, the net effect on US equities would actually be a positive, as earnings estimates would immediately rebound and fears about high yield bond contagion would go away. Consumers would see a halving of the savings they’ve gotten from falling gasoline prices, but this would not be enough to dampen the benefits to the stock market.
Source:
What if oil price now climbs to $80/bbl?
UBS Macro Strategy Key Issue
